Federal Tax Credits for Health Insurance Under Legal Scrutiny

The Affordable Care Act (ACA) remains under a cloud of uncertainty as people scramble to sign up for health insurance during the ACA’s second open enrollment season. Tax credits to help low-income Americans pay their premiums are a major provision of the ACA. This provision has come under fire because the law specifically says people only qualify for tax credits when they buy insurance on an online marketplace “established by the state.” To date, only 14 states have set up their own marketplaces. Most states have directed their residents to the federal exchange, Healthcare.gov. Will people in these states be allowed to claim tax credits?

Most experts agree the tax credits are an essential part of the ACA, whose goal is to make health coverage more affordable. A federal appeals court in Virginia ruled that someone buying insurance on a federal exchange qualifies for the tax credits (King v. Burwell). A federal appeals court in Washington says they do not qualify for the credits (Halbig v. Burwell). The U.S. Supreme Court has agreed to hear the King v. Burwell case. A ruling against the tax credits for non-state run exchanges would mean more than half of the 7.3 million people who bought policies on the exchanges wouldn’t qualify for the tax credits.

The ACA could become ineffective if the high court rules to block the credits. Many people would find health insurance too expensive without the credits. It’s believed they would be forced to apply for a hardship exemption to relieve them of the law’s requirement to have health insurance, and then hospitals would be stuck with the cost of covering uninsured patients. Rather than allowing this, states may be forced to set up their own exchanges or lawmakers could amend the law to allow states to establish an exchange, but have the federal government run it. Anyone shopping for healthcare coverage on the federal exchange will need to pay close attention to this ruling.

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